Fitch Solutions raises BSP rate hike outlook to 75 basis points in 2022


Posted at Sep 27 2021 10:46 AM

MANILA - The Bangko Sentral ng Pilipinas is likely to implement faster key policy rate hikes in 2022 up to a total of 75 basis points, Fitch Solutions said Monday.

The 75 bps hike, which will bring the country's key borrowing rate to 2.75 percent, is higher than the previous estimate of a 50 bps rate hike, Fitch Solutions said in a statement. 

For 2021, the BSP is expected to keep the benchmark interest rate at 2 percent, the group said.

"We at Fitch Solutions maintain our expectation for the Bangko Sentral Ng Pilipinas (BSP) to keep its key policy rate on hold at 2.00 percent through 2021 but we now expect 75 basis points (bps) of hikes in 2022 to 2.75 percent, revised up from 50bps previously," according to the latest Fitch Solutions outlook.

"We expect that as the economy begins to rebound, the BSP will seek to normalize sooner rather than later to anchor investor appetite for Philippine assets and temper demand-side inflationary pressures," it added.

A monetary policy action can also be announced in the second quarter of 2022, earlier than the previous forecast of fourth-quarter next year, Fitch Solutions said.

Fitch Solutions cited external pressures from the US Federal Reserve, the gradual recovery in domestic activity and the elevated inflationary pressures could push the BSP to tighten monetary policy.

Although the US Fed on Sept. 22 left its policy unchanged it signaled that it would soon start removing the stimulus it provided during the COVID-19 pandemic.

The BSP kept the overnight reverse repurchase facility at 2 percent for 7 consecutive monetary policy meetings, reiterating its commitment to be "accommodative" as long as necessary. 

Fitch Solutions also revised upwards its inflation expectation to 4.5 percent in 2021 from 4 percent and 3.7 percent in 2022 from 3.4 percent. 

Inflation, which accelerated to 4.9 percent in August, could reach 5 percent in September due to upside inflationary pressure, BSP Deputy Governor Francisco Dakila earlier said. 

The government target range is from 2 to 4 percent. 


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